Fuel Tax Credits Scheme
What it is
The Fuel Tax Credits Scheme (FTCS) refunds fuel excise to businesses that use diesel (and other fuels) for off-road purposes or in heavy on-road vehicles. The policy rationale is that fuel excise is a road-user charge: if your diesel never touches a public road, you shouldn’t pay it.
The current credit rate for off-road diesel is 48.8 c/L — effectively the full excise. Heavy on-road vehicles (over 4.5 t GVM) receive a partial credit of approximately 19 c/L, reflecting that they pay a road-user charge via a separate mechanism.
Scale
In FY 2022–23 the scheme cost $7.8 billion in revenue forgone (australia-institute-ftc-2024?). This makes it one of the largest single items of Commonwealth expenditure that doesn’t appear in the budget papers as a spending line — it is classified as a tax expenditure (revenue not collected).
For context, $7.8 billion is larger than the entire Commonwealth spend on public hospitals, and roughly double the Renewable Energy Target’s cumulative cost.
Who benefits
| Sector | FTC claimed | Share | Implied diesel (BL) |
|---|---|---|---|
| Mining | $3.5B | 45% | ~7.2 |
| Agriculture, forestry, fishing | $1.3B | 17% | ~2.7 |
| Transport, postal, warehousing | ~$1.0B | 13% | ~2.0 |
| Construction | ~$0.8B | 10% | ~1.6 |
| Other (manufacturing, utilities, defence) | ~$1.2B | 15% | ~2.5 |
| Total | $7.8B | 100% | ~16 |
Mining dominates. Within mining, coal accounts for approximately 48% of sector diesel use (ieefa-mining-diesel-2026?), implying coal miners alone claim roughly $1.7 billion per year in fuel tax credits. Iron ore and gold are the next largest mining sub-sectors.
Policy significance for electrification
The FTCS is the single largest structural barrier to off-road diesel electrification in Australia:
It halves the fuel cost advantage. A mine operator paying $2.00/L retail diesel effectively pays $1.51/L after credits. The saving from switching to electricity drops from ~$1.63/L to ~$1.14/L — a 30% reduction in the incentive to electrify.
It is regressive by sector. The largest beneficiaries (coal and iron ore miners) are among the most profitable and capital-rich companies in the economy. Small farms receive the same rate but claim far less in absolute terms.
It is invisible. Because it is a tax expenditure rather than a budget appropriation, it receives far less scrutiny than a direct subsidy of equivalent size would attract.
Reform is politically difficult. Any reduction would be characterised as a “tax on farmers” despite agriculture receiving only 17% of the total. The mining lobby is well-resourced.
What reform might look like
The most commonly discussed options are:
- Phase-down for mining — reduce the credit rate by, say, 10 c/L per year over five years, retaining the full rate for agriculture and small business. This would raise ~$3.5 billion over the phase-down period from mining alone.
- Electrification offset — allow businesses to claim a credit against electricity used in equipment that replaces diesel, creating fiscal neutrality for the switch.
- Carbon-linked reduction — link the credit rate to the Safeguard Mechanism baseline, so facilities already subject to emissions obligations face a declining diesel subsidy.
None of these are currently government policy.